Annual Financial Report

RNS Number : 4329M

F&C U.S. Smaller Companies PLC

23 August 2013

 



Date:                23 August 2013

Contact:           Robert Siddles                                               

                        F&C Management Limited                              

                        020 7628 8000                                               

F&C US Smaller Companies PLC

Audited Statement of Results

for the year ended 30 June 2013

Summary of results

Attributable to equity shareholders	30 June 2013	30 June 2012	% Change
Net assets	£147.69m	£99.25m	48.8
Net assets per share	618.35p	468.32p	32.0
Russell 2000 Index (sterling adjusted)	644.48	509.09	26.6
Share price	644.00p	466.50p	38.0
Net cash*	4.7%	5.6%
Increase in net asset value per share since inception   on 8 March 1993			540.8
Increase since 8 March 1993 in the Russell 2000 Index   (sterling adjusted)			308.7

*Calculated as cash and investment debtors less overdrafts and investment creditors at balance sheet value as a percentage of net assets.

Chairman's Statement

Dear fellow shareholders

Over the last year to 30 June 2013 the US stock market rose strongly, led by smaller companies. This reflected quantitative easing policies by central banks but was despite lacklustre US economic performance. The Company performed well over the year.

Performance

I am pleased to report that the Net Asset Value ("NAV") showed a significant increase. In the twelve months to 30 June 2013 the NAV per share rose 32.0% to 618.4p. This compared to gains of 26.6% in our benchmark, the sterling adjusted Russell 2000 Index and 22.0% in the sterling adjusted Standard & Poor's Index.

Since the Company's formation in March 1993, the NAV per share has risen by 540.8%, compared with the sterling adjusted Russell 2000 Index gain of 308.7%.

Market review

In dollar terms, the Russell 2000 Index of smaller companies gained 22.4% during the year under review, better than the other major US equity indices: the Standard & Poor's Composite and the more technology oriented NASDAQ Composite indices which rose 17.9% and 16.0% respectively. Smaller companies benefited relative to larger ones as investors seemed more willing to take risks, perhaps because of the stimulus provided by central banks.

In the first half of the twelve month period, the US stock market struggled to make progress as economic growth appeared to slow, tension increased in the Middle East and investors were nervous ahead of the US Elections. In the second half stocks rallied. At first there was an improvement in US economic activity as measured by the usually reliable Institute of Supply Management survey of manufacturing. In addition, Japan joined other monetary authorities around the globe in easing monetary policy. The market continued to climb even though US growth began to fade in the spring: a sharp decline in US Treasuries may have encouraged investors to switch into equities.

It was around this time that stock market developments became concerning: the advance in equities began to take on a frenzied character, most apparent in the Standard & Poor's Composite Index of large capitalisation stocks, which rose at an accelerating pace.

Towards the end of the period, the Federal Reserve began to indicate that quantitative easing could come to an end within the next year and these comments also coincided with intervention by China's central bank to rein in credit growth. These factors caused a sell-off in shares. The Federal Reserve had been facing a rising tide of criticism about the dangers of printing money in that it might create new market bubbles in higher risk assets and primarily benefit financial market participants.

Discount and buybacks

The price of the shares rose by 38.0% to 644.0 over the year. The premium to NAV per share was 4.1% at the end of the period compared to a discount of 0.4% a year earlier. The average during the year was a premium of 2.7%. At 21 August 2013 the price stood at a premium of 5.1%.

For the fourth consecutive year, the Company did not buy back any shares, reflecting a share price premium for almost all of last year. The Company began issuing shares in the prior financial year and was able to continue doing so this year. It issued 2,692,000 shares to meet demand from the market, bringing the total shares in issue to 23,884,135 at year end. The share issuance raised £14.6m and the average premium to NAV of the shares issued was 1.4%: each issue of shares during the year was at a premium. No further shares have been issued since the year end.

The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to around 10%.

Corporate governance

The Company is committed to high standards of corporate governance and the Board believes that the Company has complied with the relevant guidance in this area. More information is included in the Corporate Governance Statement on pages 21 to 25.

Annual general meeting

The annual general meeting ("AGM") will be held at 12.30 pm on Tuesday 8th October 2013 and I hope that you will attend. The meeting will be held in the offices of F&C Management Limited at Exchange House, Primrose Street, London EC2A 2NY. A map showing the location is included in the Notice of Annual General Meeting on page 46.

Outlook

The US smaller company sector is an exciting one and shareholders can benefit from investing alongside some of America's most entrepreneurial managers. The US economy has recovered from the recession but growth seems to have slowed recently. The market has performed very well in the last year; it would be somewhat unusual for those gains to be repeated this year and consolidation is always possible. Nevertheless in the longer term, equities should repay patient investors.

Gordon Grender

Chairman

23 August 2013

Principal risks

The principal risks and uncertainties faced by the Company, and the Board's mitigation approach, are described below.

Market - the Company's investments consist of quoted equity securities and it is therefore exposed to movements in the price of individual securities and the market generally. The large number of investments held and the sector diversity of the portfolio enable the Company to spread its risks with regard to individual companies and sectors, but a significant fall in US equity markets could have an adverse impact on the value of the Company's investment portfolio. The Board recognises that by its nature the US smaller companies sector can be a risky asset class to invest in and has adopted a disciplined and relatively conservative investment style that it considers appropriate to long-term investment in this sector.

Investment strategy - inappropriate investment strategy or ineffective implementation of this strategy could result in poor returns for shareholders. The Board periodically reviews the investment strategy and regularly monitors the Company's investment portfolio and the investment selection, performance and operations of the Manager.

Investment management resources - the quality of the management team is a crucial factor in delivering good performance and loss by the Manager of key staff could adversely affect investment returns. The Manager has training and development programmes in place for its employees and develops its recruitment and remuneration packages in order to retain key staff.

Service providers - administrative errors or control failures by or between service providers could be damaging to the interests of investors and the Company. The Board receives regular reports from the Manager on its oversight of service providers which, for the administration of the F&C savings plans, includes audit site visits; monthly technical compliance monitoring; monthly service delivery meetings; quarterly financial crime prevention forums; and the detailed review and investigation of breaches and complaints. Arrangements are also in place to mitigate other service provider risks, including those relating to safe custody and the Manager's outsourced operational platform and its counterparties.

Regulation - failure to comply with applicable legal and regulatory requirements could result in the Company losing its listing and/or being subject to corporation tax on its capital gains. The Board reviews regular reports from the Manager on the controls in place to ensure compliance by the Company with rules and regulations. The Board also receives regular investment valuations and income forecasts as part of its monitoring of compliance with the provisions of section 1158.

These risks and the way they are mitigated are described in more detail under the heading Internal Controls and Management of Risk in the Corporate Governance section of the Company's Annual Report for the year ended 30 June 2013. The Annual Report is published on the Company's website, www.fandcussmallers.com.

Statement of Directors' Responsibilities in Respect of the Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on the www.fandcussmallers.com website, which is maintained by F&C. The content and integrity of the website maintained by F&C or any of its subsidiaries is, so far as it relates to the Company,

the responsibility of F&C. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, confirms that, to the best of his knowledge:

• the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and return of the Company; and

• the Directors' report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

Income Statement

for the year ended 30 June	2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Gains on investments	-	34,254	34,254	-	1,048	1,048
Foreign exchange gains/(losses)	-	129	129	-	(34)	(34)
Income	913	-	913	902	-	902
Management fee	(1,016)	-	(1,016)	(744)	-	(744)
Other expenses	(307)	(8)	(315)	(300)	(3)	(303)
Net return on ordinary activities before taxation	(410)	34,375	33,965	(142)	1,011	869
Taxation on ordinary activities	(136)	-	(136)	(135)	-	(135)
Net return attributable to equity shareholders	(546)	34,375	33,829	(277)	1,011	734
Return per share - pence	(2.42)	152.16	149.74	(1.33)	4.85	3.52

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations.

A statement of total recognised gains and losses is not required as all gains and losses of the Company have been reflected in the above statement.

Reconciliation of Movements in Shareholders' Funds

for the year ended 30 June 2013
	Called-up	Share	Non-	Capital			Total
	share	premium	distributable	redemption	Capital	Revenue	shareholders'
	capital	account	reserve	reserve	reserves	reserve	funds
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Balance at 1 July 2012	5,298	4,660	841	8,175	82,418	(2,144)	99,248
Movements during the year ended 30 June 2013
Shares issued by the Company	673	13,938	-	-	-	-	14,611
Net return attributable to equity shareholders	-	-	-	-	34,375	(546)	33,829
Balance at 30 June 2013	5,971	18,598	841	8,175	116,793	(2,690)	147,688
for the year ended 30 June 2012
Balance at 1 July 2011	5,177	2,468	841	8,175	81,407	(1,867)	96,201
Movements during the year ended 30 June 2012
Shares issued by the Company	121	2,192	-	-	-	-	2,313
Net return attributable to equity shareholders	-	-	-	-	1,011	(277)	734
Balance at 30 June 2012	5,298	4,660	841	8,175	82,418	(2,144)	99,248

Balance Sheet

at 30 June	2013	2012
	£'000s	£'000s
Fixed assets
Listed investments	141,061	93,858
Current assets
Debtors	793	95
Cash at bank and in hand	6,773	5,675
	7,566	5,770
Creditors: amounts falling due within one year	(939)	(380)
Net current assets	6,627	5,390
Net assets	147,688	99,248
Capital and reserves
Called-up share capital	5,971	5,298
Share premium account	18,598	4,660
Non-distributable reserve	841	841
Capital redemption reserve	8,175	8,175
Capital reserves	116,793	82,418
Revenue reserve	(2,690)	(2,144)
Total shareholders' funds	147,688	99,248
Net asset value per share - pence	618.35	468.32

Cash Flow Statement

for the year ended 30 June	2013	2012
	£'000s	£'000s
Operating activities
Investment income received	780	732
Interest received	7	3
Fee paid to management company	(919)	(739)
Fees paid to Directors	(81)	(69)
Other payments	(212)	(224)
Net cash outflow from operating activities	(425)	(297)
Return on investment and servicing of finance
Purchases of investments	(51,812)	(22,601)
Sales of investments	38,602	22,856
Other capital charges and credits	(7)	(3)
Net cash (outflow)/inflow from investment and servicing of finance	(13,217)	252
Net cash outflow before use of liquid resources and financing	(13,642)	(45)
Financing
Issue of ordinary shares	14,611	2,313
Management of liquid resources
Increase in short-term deposits	(1,197)	(2,144)
(Decrease)/increase in cash	(228)	124

Notes

1   Return per ordinary share

Revenue return

The revenue return per share is based on the net revenue return attributable to equity shareholders of £546,000 loss (2012: £277,000 loss).

Capital return

The capital return per share is based on the net capital return attributable to equity shareholders of £34,375,000 profit (2012: £1,011,000 profit).

Weighted average ordinary shares in issue

Both the revenue and capital returns are based on a weighted average of ordinary shares in issue during the year of 22,591,387 (2012: 20,850,345).

2    Annual general meeting

The annual general meeting will be held at Exchange House, Primrose Street, London EC2A 2NY on Tuesday 8 October 2013 at 12.30 p.m.

3    Report and accounts

The report and accounts for the year ended 30 June 2013 will be posted to shareholders and made available on the website www.fandcussmallers.com shortly. Copies may also be obtained from the Company's registered office, Exchange House, Primrose Street, London EC2A 2NY.

By order of the Board

F&C Management Limited, Secretary

Exchange House, Primrose Street, London EC2A 2NY

23 August 2013

 

END

 

 

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